ANALYSIS-Pratt, GE battle over billions in jet engine orders

NEW YORK, Feb 18 (Reuters) - As the next generation ofnarrow-body airplanes takes to the skies later this year, makersof the new fuel-efficient engines that power them are battlingfor market share.

Orders worth $20 billion are up for grabs in the competitionbetween Pratt & Whitney and CFM International. Pratt also standsto gain market prominence as it makes what some experts describeas an industry comeback.

Pratt, a unit of United Technologies Corp and amajor military contractor, has had a smaller commercial enginemarket presence in recent years.

In contrast, CFM, a joint venture between General ElectricCo and Safran, has supplied the dominant engineon narrow-body, single-aisle planes, which are the best-sellingBoeing Co and Airbus Group models.

Single-aisle planes make up more than 60 percent of allcommercial jets flying today, and are expected to account for 70percent of the 35,000 new commercial jets delivered over thenext 20 years, a market worth nearly $2.3 trillion.

Jet engine sales are expected to top $500 billion over thenext decade, according to the Teal Group, an aerospace researchfirm. Manufacturers fight hard for sales because a largeinstalled base of engines yields big profits later throughmaintenance and replacement parts.

While Boeing's 737 MAX and the Airbus A320neo will haveaerodynamic improvements that make them more efficient, the newengines account for most of their fuel savings.

"The most significant change on either of these jets is theengines," said Will Alibrandi, an aero turbine analyst forForecast International.

FOCUS ON NEO

That means airlines will scrutinize the engines' performanceand their choice will show in the A320neo competition.

CFM has already sewed up a swath of the single-aisle marketfor its LEAP engine. CFM is the only engine option on the 737MAX, the A320neo rival, a deal that keeps CFM as the top enginesupplier in the single-aisle category.

But Pratt's new power plant, known as the geared turbofan(GTF), the other option on the A320neo, aims to challenge CFM'sdominance.

Pratt also has signed exclusive deals to supply the GTF tofour regional jet makers, including Bombardier Inc andEmbraer. While each is much smaller than the 737 andA320, those jets combined will represent significant sales overtime.

The A320neo has so far won more orders than the 737 MAX,making it a big market opportunity for Pratt.

And Pratt already is proving to be a tough competitor. Sofar, Pratt and CFM have evenly split the A320neo market. Out of2,610 A320neo orders as of January, about 32 percent haveselected CFM and 32 percent have selected Pratt, Airbus said.

The contest for the remaining jets represents about 1,880engines worth nearly $20 billion at list prices of about $11million per engine.

"Where you see the real competitive battlefront betweenthese two is on the Airbus," said Ernest Arvai, an aviationindustry consultant with AirInsight. "It's a huge market."

START YOUR ENGINES

The two engines use radically different designs. Pratt's GTFrelies on a gearbox that lets the front fan operate at adifferent speed than the rest of the engine. On traditionallyconfigured engines they run at the same speed. CFM's LEAP, amongother improvements, uses new materials designed to reduce weightand add durability.

Pratt's GTF will be the first engine into the sky on a newgeneration jet when Airbus A320neo flights start in the fourthquarter, and therefore the first to provide actual flightperformance data that could help win over undecided airlinecustomers.

"A successful flight test program by all rights shouldgenerate more sales and should kick some folks off the fence,"said turbine analyst Alibrandi. "You can make all kinds ofperformance guarantees," but the proof is from engines actuallyflying on the plane.

United Technologies, which poured $1 billion into developingthe GTF, projects Pratt's revenue will roughly double to $26billion by 2020, fueled in part by the GTF. Pratt also makesengines for the F-35 Joint Strike Fighter jet. UnitedTechnologies - whose Chief Executive Officer Louis Chenevert wasPratt's president for seven years - posted $62.6 billion inrevenue last year.

"The GTF has become the cornerstone of Pratt & Whitney'scommercial engine business," David Brantner, president ofPratt's commercial engines business, said in an interview.

Aviation also is an important division for GE, accountingfor about 15 percent of its $146 billion in 2013 revenue. Theimportance is likely to grow as the U.S. conglomerate focusesmore on industrials businesses and moves away from exposure tothe financial sector.

Including orders from the China's Comac C919, CFM expects tocontinue to have about 75 percent of the engine market forsingle-aisle planes, said Chaker Chahrour, CFM's executive vicepresident.

"We are certain that we will maintain the overall 75percent," Chahrour said. "The battle is not over. There arestill many orders to come on these airplanes."

Beyond price, airlines want guarantees on performance andreliability, as well as agreements over maintenance and othercosts over as long as 20 years, said Norman Hecht, an engineconsultant and former Pratt veteran.

The first Pratt-powered A320neo is due for delivery tocustomers in late 2015. The LEAP-powered A320neo is scheduled toenter into service in the second quarter of 2016.

That means some airlines may take years to see how bothengines perform before choosing.

"It's early, and they both have very compelling products,"said William Storey, Teal Group's president. "The jury is out onwho will win."

(Reporting by Lewis Krauskopf; Editing by Alwyn Scott and LisaShumaker)